News Release

London

Retail Real Estate Investment Up Almost 60% in Europe in Q4 2009

2010-01-28T06:00:00Z

According to Jones Lang LaSalle

London, 28th January 2010 - Retail real estate transaction volumes in Europe during Q4 2009 totalled €4.5bn from 100 deals, nearly 60% up on €2.9bn achieved from 66 deals in Q3 2009, according to Jones Lang LaSalle. However, full year total volumes in 2009 reached €12.3bn, a 32% decline compared to a €18.2bn total in 2008.

As the high cost and lack of access to finance continued to restrict the market, volumes in Continental Europe reached €7.3bn, a year-on-year decline of over 40%. However, towards the end of 2009 activity picked up with total volumes in Q4 2009 reaching €2.5bn from 65 transactions, almost 40% higher than Q3 2009.

As predicted by Jones Lang LaSalle in 2008 the UK, Germany, Italy and France continued to dominate the retail investment market in Europe each seeing over €1bn worth of deals transacted. The UK witnessed the greatest amount of activity in Q4 with over 40 deals raising €2bn; almost double that reached in Q3 2009. Two of the most significant transactions were Tesco plc’s sale of a portfolio of supermarkets to a UK pension fund for €427 million (£386 million), and the sale of Silverburn shopping centre in Glasgow for €328 million (£297 million).

With four deals totalling over €100 million in 2009, Germany was the most active market in Continental Europe securing a 21% share of total volumes transacted. Deals such as the sale of a stake in the Thier-Gelände shopping centre in Dortmund for €225 million and the Mercado shopping centre in Hamburg for €164 million, highlight the relatively robust domestic market. France and Italy both saw a total volume of approximately €1.2bn during 2009, with France seeing just over €500 million in Q4 (including the €115 million portfolio of Decathlon stores).

Accounting for 56% of all retail transactions in Europe, shopping centres remained the principal target for investors in 2009 with a continued focus on prime product in core Western markets. Continental Europe accounted for 66% of total volumes with €4.8bn, compared to 55% in 2008 with €6.8bn. Conversely retail park investment declined considerably from €2.5bn in 2008 to €526 million in 2009 reflecting a lack of high quality stock and the higher cost of finance.

Institutional investors were the most active group across Europe in 2009, accounting for almost a quarter of the total volumes traded. In Continental Europe, funds continued to drive the market with €1.8bn transacted, of which Germany accounted for over €0.5bn, while the largest investor was Union Investment. The principal vendor group in Europe during 2009 were unlisted developers and property companies looking to recapitalise their balance sheets who accounted for sales of €2.9bn, a quarter of 2008’s total volume.

One trend that continued into 2009 was a decline in cross border investment activity, as investors increasingly favoured their local markets. In Continental Europe, 40% of total investment volumes involved at least one party trading outside their country of origin, down from almost 67% in 2008 and 76% in 2007. We expect the trend to reverse throughout 2010.

Portfolio deals in 2009 represented 22% of total transaction volumes in Europe and increased to almost a third as the year drew to a close, including 5 portfolio deals over €100 million of which three were sale and lease backs.

Jeremy Eddy, Head of European Retail Capital Markets, said “We are expecting a strong start to H1 2010 across Europe with an increasing trend of equity partnering with expertise in joint ventures and property clubs. This will enable equity players to access markets and opportunities while allowing REITS and property companies to stretch their constrained equity, enlarge their European footprint and generate fee income. Much of this equity will remain focused on the prime-end of the market and we envisage continued weak pricing for secondary assets as pricing has yet to move out to meet the pricing returns of opportunistic buyers, a significant group in this sector of the market.”

Adrian Peachey, Head of UK Retail Capital Markets, commented “Recovery in pricing and liquidity of shopping centres continued in the second half of 2009 driven by the demand and supply imbalance. The question remains how long can this recovery be sustained; we believe prime assets are being slowly rebased and should hold relatively firm. The window of opportunity for brave sellers of dominant secondary schemes will remain during the start of 2010. However, an increase in the numbers of bank sales could dilute the supply and demand imbalance and this coupled with a fragile occupational story could put an end to inward yield shift in the more secondary centres.”

Notes to EditorsThis research considers all investment sales of shopping centres, retail warehouses and factory outlet centres in Europe. It excludes the high street and any investment deal less than €5 million in value. Our analysis of “Continental Europe” excludes the UK & Irish markets.